Developing Economies Challenge Europe’s Chocolate Reign

16 May 2018

Europe is hardly known for consumer-focused, light manufacturing anymore. Other than the automobile and medical equipment industries, most export-focused industry left Europe for economies with lower labor costs decades, if not centuries, ago. Yet, there are still a few exceptions: notably, chocolate.

Europe has dominated the production, consumption, and exportation of chocolate since the advent of reliable statistics. Within the European Union (EU), just Germany, France, and the United Kingdom (UK) together consume more cocoa per year than the entire United States (US)—the next largest consumer. Chocolate production is so large within Europe that the continent accounts for 70 percent of global exports, a number which has gone nearly unchanged since the United Nations’ Food and Agriculture Organization (FAO) first started gathering data in 1961.

As chocolate consumption is heavily concentrated in Europe, world cocoa bean production and exportation is concentrated in Africa. Africa produces over two-thirds of global cocoa and an even higher proportion of global exports, the majority of which are sourced from a relatively small area of land spanning several countries in West Africa. The epicenter, Côte d'Ivoire, produces a third of the world’s cocoa alone.

Maybe more than for any other globally-consumed commodity, chocolate production relies on a diffuse supply chain that spans multiple continents. In an age where centralization and vertical integration are increasingly vital to the survival of an industry, how then has the world’s chocolate supply chain remained such an exception? And how exactly might it be beginning to change?

Background

The answer partly lies in the temperament of the crop itself, and cocoa is notoriously finicky. Native to the warm and humid Amazon basin, cocoa trees can only thrive within roughly ten latitudinal degrees of the Equator where consistent temperatures above 21 degrees centigrade and rainfall between 1,000 and 2,500 millimeters are present. Notably, drought and excessively hot or dry winds, such as the notorious Harmattan winds in West Africa, can quickly slash yields across wide areas. Moreover, cocoa still requires manual harvesting, and high labor costs in a given country can quickly make cultivation fiscally infeasible.

Historically, chocolate had been prepared as a drink. Chocolate drinks became popular in Europe shortly after the Columbian Exchange, but the commodity would only achieve true ubiquity during Europe's Industrial Revolution. Between 1815 and 1879, innovations associated with names such as Nestlé, Lindt, and Cadbury quickly transformed chocolate from a bitter, millenia-old drink into the sweet, cheap, and convenient chocolate bars that are pervasive today.

Europe has remained the epicenter of chocolate ever since, despite the nearest cocoa plantations being thousands of miles away. Six of the top ten cocoa-consuming countries in the world are all in Europe. In per capita terms, the world's ten largest cocoa-consuming countries are all in Europe. At the top of the list, Estonians consumed 6.8 kilograms of cocoa products per person in the 2015/16 marketing year. Chocolate is of significant economic value to Europe, too. 'Chocolate products' was Europe's second most valuable processed food export ($19.2 billion), behind only 'Prepared food, not elsewhere specified' ($27.6 billion), according to most recent data from the FAO.

That said, there are other regions producing mass amounts of chocolate for export. North America is the world's second largest chocolate-exporting region, led by Canada and the US who exported 359.5 thousand and 323.1 thousand tonnes in 2016, respectively. Asia both produces its own cocoa beans (almost exclusively in Indonesia) and increasingly produces and exports its own chocolate, too.

Europe's position within the global chocolate market nevertheless remains strong. Competitive advantage within the industry is ultimately dictated by efficient production and economies of scale, which in turn encourage global market access and standardized product offerings. There were over 200 mergers and acquisitions within the chocolate industry between 1970 and 1990, and roughly 50 percent of the global market is supplied by just 17 companies—the majority of them European. Ferrero Group ($12 billion), Nestlé SA ($8.8 billion), Lindt & Sprüngli AG ($4.1 billion), and Pladis ($2.8 billion) each brought in over a billion US dollars in net sales in 2017 and are among the world's ten largest chocolate companies by that measure.

Lastly, there has been and continues to be significant debate between major polities about what exactly constitutes chocolate in the first place—such as how much vegetable fat can be included in chocolate—which has often been used to stifle foreign competition in the past.

East Asia rising

Conditions in many parts of Southeast Asia are optimal for cocoa production. Historically, it has only been the region's unfamiliarity with the delicacy that has impeded large-scale growth of the sector. As globalization continues to transform the economies of the region, however, the chocolate landscape is quickly beginning to change.

Domestic chocolate demand generally reflects the size of a country's middle class, and Japan, being the first industrialized nation in East Asia, was the first in the region to truly embrace chocolate. Japanese companies Meiji Co Ltd and Ezaki Glico Co Ltd were the fourth and seventh largest chocolate companies in the world in 2017, bringing in $9.6 and $3.2 billion in net sales, respectively. Japan consumed 176.3 million tonnes of cocoa products in 2015/16—the seventh most of any country in the world—but a declining population and saturated market are not likely to be attractive targets for global chocolate producers.

Rather, as the world's economy continues to shift toward other parts of East Asia and disposable incomes steadily rise throughout the region, several new countries have acquired the taste for chocolate. The industry's largest prospect, China, has been relatively slow to catch on so far. Of course, in China, “slow” means it is already the world's eleventh largest consumer of cocoa products, the total amount of which has more than doubled since just 2009/10.

Certain countries, such as Indonesia, even possess chocolate-appreciating cultures and the ability to produce and process cocoa domestically—a big threat to the current structure of the industry. In fact, Indonesia is by far the largest producer of cocoa beans outside of West Africa. While growing conditions are optimal among Indonesia's many tropical islands, cocoa faces strong competition and significant impediments to further expansion in that country. Cocoa beans are one of the most labor-intensive crops to cultivate, and a large pool of cheap labor is necessary to keep production costs low. Chocolate demand in China and other parts of East Asia continues to rise, but it might not be fast enough to outpace a significant increase in price as wages in Indonesia rise.

Africa, the sleeping giant

Africa's population is set to double by 2050, at which point the continent will be the only region still experiencing “substantial population growth.” Moreover, studies generally agree that Africa's middle class will only continue to grow, and some studies even suggest that by 2050, only one low income country will be left on the continent. Given chocolate's role as a reliably cheap luxury, there's a chance that the majority of cocoa beans produced in Africa each year will remain to be processed on the continent by 2050. While Africa's share of the globe's total chocolate exports has only increased by about 0.9% between 1961 and 2016, the region's total chocolate exports have doubled in volume during the same period. Several new brands of African-produced chocolate have been launched since then, and the region's growth potential is clearly far from exhausted. Land and labor in Indonesia and other Southeast Asian countries already faces stiff competition from other cash crops (such as palm oil plantations) and other manufacturing industries. Compared with Southeast Asia, West Africa possesses both in abundance.

Looking Forward

Europe has been responsible for countless innovations in chocolate production over the past few centuries, and most people would agree that the region has earned its chocolate crown. While the macroeconomic trends of European chocolate will remain strong for the immediate future, there have been signs that its dominance has already begun to erode slightly.

The world's largest consumer base, by total and per capita consumption, has helped insulate Europe and its chocolate industry from foreign competition. Intense consolidation among the continent's major producers has kept production costs low, too, allowing European companies to compete well with new competitors in emerging markets.

Effective marketing and consumer preference for Europe's historic chocolatiers will continue to buoy the industry as well. Brands and country-of-origin maintain a positive correlation, and European chocolatiers will surely benefit from their perceived quality, especially among their higher-end chocolates. US food giant Kraft Foods Inc. (now Mondelez International) purchased the nearly 200-year old British confectionery company Cadbury in 2010 partially with the intent of leveraging its reputation overseas. Lastly, a new generation of high-end craft chocolates is gaining favor among consumers, and European standards and experience makes its chocolatiers well-positioned to grab significant market share.

European chocolate companies' main concern in the near term will be East Asia. Indonesia is already the world's third largest producer of cocoa beans, and as the entire region's middle class continues to swell, local chocolate producers are well-positioned to both leverage domestic cocoa production and subsequently capture a significant share of the growing chocolate market. Similar to Mondelez, well-heeled Asian conglomerates are likely eyeing acquisitions of famous European brands, too.

In the longer term, Africa has the most growth potential. West African nations unsurprisingly prioritized the region's petroleum industry over cocoa during previous decades. The sustained collapse in global oil prices may therefore reignite interest among governments looking to diversify manufacturing by building out other raw material processing industries, such as cocoa. If African governments are serious about diversifying their economies and providing higher-paying manufacturing jobs to their people, chocolate production is an obvious industry to pursue. Especially in West Africa, where nearly all of the cocoa is produced and many of the continent's most populous and most rapidly developing economies are located, the perfect conditions exist for chocolate producers to take root.

This is not to say that Europe's reign over global chocolate is over. European chocolate companies and Gro subscribers alike can continue to use our unique mix of geospatial, price, and supply and demand data to stay ahead of any global shifts.

RESEARCH

ABOUT

This Privacy Policy describes the policies and procedures of Gro Intelligence, Inc. (“we”, “our” or “us”) on the collection, use and disclosure of your information on www.gro-intelligence.com (the “Site”) and the services, features, content or applications we offer (collectively with the Site, the “Services”). We receive information about you from your use of the Services generally. When you use the Services, you are consenting to the collection, transfer, manipulation, storage, disclosure and other uses of your information as described in this Privacy Policy.

What Does This Privacy Policy Cover?

This Privacy Policy covers the treatment of personally identifiable information (“Personal Information”) gathered when you are using or accessing the Services. This Privacy Policy also covers our treatment of any Personal Information that our business partners share with us or that we share with our business partners.

This Privacy Policy does not apply to the practices of third parties that we do not own or control, including but not limited to any third party websites, services and applications (“Third Party Services”) that you elect to access through the Service or to individuals that we do not manage or employ. While we attempt to facilitate access only to those Third Party Services that share our respect for your privacy, we cannot take responsibility for the content or privacy policies of those Third Party Services. We encourage you to carefully review the privacy policies of any Third Party Services you access.

What Information Do We Collect?

The information we gather enables us to personalize, improve and continue to operate the Services. We collect the following types of information from our users.

IP Address Information and Other Information Collected Automatically:

· We automatically receive and record information from your web browser when you interact with the Services, including your IP address and cookie information. This information is used for fighting spam/malware and also to facilitate collection of data concerning your interaction with the Services (e.g., what links you have clicked on).

· Generally, the Services automatically collect usage information, such as the number and frequency of visitors to the Site. We may use this data in aggregate form, that is, as a statistical measure, but not in a manner that would identify you personally. This type of aggregate data enables us and third parties authorized by us to figure out how often individuals use parts of the Services so that we can analyze and improve them.

Information Collected Using Cookies:

· Cookies are pieces of text that may be provided to your computer through your web browser when you access a website. Your browser stores cookies in a manner associated with each website you visit. We use cookies to enable our servers to recognize your web browser and tell us how and when you visit the Site and otherwise use the Services through the Internet.

· Our cookies do not, by themselves, contain Personal Information, and we do not combine the general information collected through cookies with other Personal Information to tell us who you are. As noted, however, we do use cookies to identify that your web browser has accessed aspects of the Services.

· Most browsers have an option for turning off the cookie feature, which will prevent your browser from accepting new cookies, as well as (depending on the sophistication of your browser software) allowing you to decide on acceptance of each new cookie in a variety of ways.

· This Privacy Policy covers our use of cookies only and does not cover the use of cookies by third parties. We do not control when or how third parties place cookies on your computer. For example, third party websites to which a link points may set cookies on your computer.

Aggregate Information:

We collect statistical information about how users collectively use the Services (“Aggregate Information”). Some of this information may be derived from Personal Information. This statistical information is not Personal Information and cannot be tied back to you or your web browser.

How, and With Whom, Is My Information Shared?

IP Address Information:

While we collect and store IP address information, that information is not made public. We do at times, however, share this information with our partners, service providers and other persons with whom we conduct business, and as otherwise specified in this Privacy Policy.

Information You Elect to Share:

You may access other Third Party Services through the Services, for example by clicking on links to those Third Party Services from within the Site. We are not responsible for the privacy policies and/or practices of these Third Party Services, and you are responsible for reading and understanding those Third Party Services’ privacy policies. This Privacy Policy only governs information collected on the Services.

Aggregate Information:

We share Aggregate Information with our partners, service providers and other persons with whom we conduct business. We share this type of statistical data so that our partners can understand how and how often people use our Services and their services or websites, which facilitates improving both their services and how our Services interface with them. In addition, these third parties may share with us non-private, aggregated or otherwise non Personal Information about you that they have independently developed or acquired.

Information Shared with Our Agents:

We employ and contract with people and other entities that perform certain tasks on our behalf and who are under our control (our “Agents”). We may need to share Personal Information with our Agents in order to provide products or services to you. Unless we tell you differently, our Agents do not have any right to use Personal Information or other information we share with them beyond what is necessary to assist us. You hereby consent to our sharing of Personal Information with our Agents.

Information Disclosed Pursuant to Business Transfers:

In some cases, we may choose to buy or sell assets. In these types of transactions, user information is typically one of the transferred business assets. Moreover, if we, or substantially all of our assets, were acquired, or if we go out of business or enter bankruptcy, user information would be one of the assets that is transferred or acquired by a third party. You acknowledge that such transfers may occur, and that any acquirer of us or our assets may continue to use your Personal Information as set forth in this policy.

Information Disclosed for Our Protection and the Protection of Others:

We also reserve the right to access, read, preserve, and disclose any information as we reasonably believe is necessary to (i) satisfy any applicable law, regulation, legal process or governmental request, (ii) enforce this Privacy Policy and our Terms of Service, including investigation of potential violations hereof, (iii) detect, prevent, or otherwise address fraud, security or technical issues, (iv) respond to user support requests, or (v) protect our rights, property or safety, our users and the public. This includes exchanging information with other companies and organizations for fraud protection and spam/malware prevention.

Information We Share With Your Consent:

Except as set forth above, you will be notified when your Personal Information may be shared with third parties, and will be able to prevent the sharing of this information.

Is Information About Me Secure?

We store all of our information, including your IP address information, using industry-standard techniques. We do not guarantee or warrant that such techniques will prevent unauthorized access to information about you that we store, Personal Information or otherwise.

What Information of Mine Can I Access?

You can access and delete cookies through your web browser settings.

California Privacy Rights: Under California Civil Code sections 1798.83-1798.84, California residents are entitled to ask us for a notice identifying the categories of personal customer information which we share with our affiliates and/or third parties for marketing purposes, and providing contact information for such affiliates and/or third parties. If you are a California resident and would like a copy of this notice, please submit a written request to the following address: 12 E 49th Street, 11th Floor, New York, NY 10017

What Happens When There Are Changes to this Privacy Policy?

We may amend this Privacy Policy from time to time. Use of information we collect now is subject to the Privacy Policy in effect at the time such information is used. If we make changes in the way we collect or use information, we will notify you by posting an announcement on the Services or sending you an email. A user is bound by any changes to the Privacy Policy when he or she uses the Services after such changes have been first posted.

What If I Have Questions or Concerns?

If you have any questions or concerns regarding privacy using the Services, please send us a detailed message to support@gro-intelligence.com. We will make every effort to resolve your concerns.

Effective Date: March 11, 2014

Gro Intelligence Terms of Service

Please read these Terms of Service (collectively with Gro Intelligence’s Privacy Policy, the “Terms of Service”) fully and carefully before using www.gro-intelligence.com (the “Site”) and the services, features, content or applications offered by Gro Intelligence, Inc. (“we”, “us” or “our”) (together with the Site, the “Services”). These Terms of Service set forth the legally binding terms and conditions for your use of the Site and the Services.

1. Acceptance of Terms of Service.

a. By using the Services in any manner, including but not limited to visiting or browsing the Site, you agree to these Terms of Service and all other operating rules, policies and procedures that may be published from time to time on the Site by us, each of which is incorporated by reference and each of which may be updated from time to time without notice to you.

2. Content.

a. Definition. For purposes of these Terms of Service, the term “Content” includes, without limitation, information, data, text, photographs, videos, audio clips, written posts and comments, software, scripts, graphics, and interactive features generated, provided, or otherwise made available on or through the Services.

c. Use License. Subject to these Terms of Service, we grant each user of the Services a worldwide, non-exclusive, non-sublicensable and non-transferable license to use (i.e., to download and display locally) Content solely for purposes of using the Services. Use, reproduction, modification, distribution or storage of any Content for other than purposes of using the Services is expressly prohibited without prior written permission from us. You shall not sell, license, rent, or otherwise use or exploit any Content for commercial use or in any way that violates any third party right.

d. Availability of Content. We do not guarantee that any Content will be made available on the Site or through the Services. We reserve the right to, but do not have any obligation to, (i) remove, edit or modify any Content in our sole discretion, at any time, without notice to you and for any reason (including, but not limited to, upon receipt of claims or allegations from third parties or authorities relating to such Content or if we are concerned that you may have violated these Terms of Service), or for no reason at all and (ii) to remove or block any Content from the Services.

3. Rules of Conduct.

a. As a condition of use, you represent, warrant and covenant not to use the Services for any purpose that is prohibited by these Terms of Service or applicable laws, rules and regulations applicable to you. You are responsible for all of your activity in connection with the Services.

b. You shall not (directly or indirectly):

i. take any action that imposes or may impose (as determined by us in our sole discretion) an unreasonable or disproportionately large load on our (or our third party providers’) infrastructure;

ii. interfere or attempt to interfere with the proper working of the Services or any activities conducted on the Services;

iii. bypass, circumvent or attempt to bypass or circumvent any measures we may use to prevent or restrict access to the Services (or other accounts, computer systems or networks connected to the Services);

iv. use manual or automated software, devices, or other processes to “crawl” or “spider” any page of the Site;

v. harvest or scrape any Content from the Services;

vi. otherwise take any action in violation of our guidelines and policies;

vii. decipher, decompile, disassemble, reverse engineer or otherwise attempt to derive any source code or underlying ideas or algorithms of any part of the Services (including without limitation any application), except to the limited extent applicable laws specifically prohibit such restriction;

viii. modify, translate, or otherwise create derivative works of any part of the Services; or

ix. copy, rent, lease, distribute, or otherwise transfer any of the rights that you receive hereunder.

c. We also reserve the right to access, read, preserve, and disclose any information as we reasonably believe is necessary to:

v. protect the rights, property or safety of us, our users and the public.

4. Third Party Services. The Services may permit you to link to other websites, services or resources on the Internet, and other websites, services or resources may contain links to the Services. When you access third party resources on the Internet, you do so at your own risk. These other resources are not under our control, and you acknowledge that we are not responsible or liable for the content, functions, accuracy, legality, appropriateness or any other aspect of such websites or resources. The inclusion of any such link does not imply our endorsement or any association between us and their operators. You further acknowledge and agree that we shall not be responsible or liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any such content, goods or services available on or through any such website or resource.

5. Termination. We may terminate your access to all or any part of the Services at any time, with or without cause, with or without notice, effective immediately. All provisions of these Terms of Service which by their nature should survive termination shall survive termination, including, without limitation, ownership provisions, warranty disclaimers, indemnity and limitations of liability.

6. Warranty Disclaimer.

a. You release us from all liability for you having acquired or not acquired Content through the Services. We make no representations concerning any Content contained in or accessed through the Services, and we will not be responsible or liable for the accuracy, copyright compliance, or legality of material or Content contained in or accessed through the Services.

b. THE SERVICES AND CONTENT ARE PROVIDED “AS IS”, “AS AVAILABLE” AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ANY WARRANTIES IMPLIED BY ANY COURSE OF PERFORMANCE OR USAGE OF TRADE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. WE, AND OUR DIRECTORS, EMPLOYEES, AGENTS, SUPPLIERS, PARTNERS AND CONTENT PROVIDERS DO NOT WARRANT THAT: (I) THE SERVICES WILL BE SECURE OR AVAILABLE AT ANY PARTICULAR TIME OR LOCATION; (II) ANY DEFECTS OR ERRORS WILL BE CORRECTED; (III) ANY CONTENT AVAILABLE AT OR THROUGH THE SERVICES IS FREE OF VIRUSES OR OTHER HARMFUL COMPONENTS; OR (IV) THE RESULTS OF USING THE SERVICES WILL MEET YOUR REQUIREMENTS.

7. Limitation of Liability. IN NO EVENT SHALL WE, NOR OUR DIRECTORS, EMPLOYEES, AGENTS, PARTNERS, SUPPLIERS OR CONTENT PROVIDERS, BE LIABLE UNDER CONTRACT, TORT, STRICT LIABILITY, NEGLIGENCE OR ANY OTHER LEGAL OR EQUITABLE THEORY WITH RESPECT TO THE SERVICES FOR ANY (I) LOST PROFITS, DATA LOSS, COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, COMPENSATORY OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER, SUBSTITUTE GOODS OR SERVICES (HOWEVER ARISING), (II) BUGS, VIRUSES, TROJAN HORSES, OR THE LIKE (REGARDLESS OF THE SOURCE OF ORIGINATION), OR (III) DIRECT DAMAGES IN EXCESS OF $50.00.

8. Governing Law and Jurisdiction. These Terms of Service shall be governed by and construed in accordance with the laws of the State of New York, including its conflicts of law rules, and the United States of America. You agree that any dispute arising from or relating to the subject matter of these Terms of Service shall be governed by the exclusive jurisdiction and venue of the state and Federal courts of New York County, New York.

9. Miscellaneous.

a. Modification. We reserve the right, in our sole discretion, to modify or replace any of these Terms of Service, or change, suspend, or discontinue the Services at any time. Your continued use of the Services following notification of any changes to these Terms of Service constitutes acceptance of those changes.

b. Entire Agreement and Severability. These Terms of Service are the entire agreement between you and us with respect to the Services, including use of the Site, and supersede all prior or contemporaneous communications and proposals (whether oral, written or electronic) between you and us with respect to the Services. If any provision of these Terms of Service is found to be unenforceable or invalid, that provision will be limited or eliminated to the minimum extent necessary so that these Terms of Service will otherwise remain in full force and effect and enforceable. The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any further rights hereunder

c. Force Majeure. We shall not be liable for any failure to perform our obligations hereunder where such failure results from any cause beyond our reasonable control, including, without limitation, mechanical, electronic or communications failure or degradation.

d. Assignment. These Terms of Service are personal to you, and are not assignable, transferable or sublicensable by you except with our prior written consent. We may assign, transfer or delegate any of our rights and obligations hereunder without consent.

e. Agency. No agency, partnership, joint venture, or employment relationship is created as a result of these Terms of Service and neither party has any authority of any kind to bind the other in any respect.

f. Notices. Unless otherwise specified in these Term of Service, all notices under these Terms of Service will be in writing and will be deemed to have been duly given when received, if personally delivered or sent by certified or registered mail, return receipt requested; when receipt is electronically confirmed, if transmitted by facsimile or e-mail; or the day after it is sent, if sent for next day delivery by recognized overnight delivery service. Electronic notices should be sent to support@gro-intelligence.com

g. No Waiver. Our failure to enforce any part of these Terms of Service shall not constitute a waiver of our right to later enforce that or any other part of these Terms of Service. Waiver of compliance in any particular instance does not mean that we will waive compliance in the future. In order for any waiver of compliance with these Terms of Service to be binding, we must provide you with written notice of such waiver through one of our authorized representatives.

h. Headings. The section and paragraph headings in these Terms of Service are for convenience only and shall not affect their interpretation.

Contact. You may contact us at the following address: 12 E 49th Street, 11th Floor, New York, NY 10017.